IBM Revenue Misses on Weakness in Legacy Infrastructure Unit

The weakness at IBM's "supposedly high-growth areas is more problematic" than the revenue miss, an analyst said.

IBM Revenue Misses on Weakness in Legacy Infrastructure Unit

Revenue at cloud software unit was up 2.5 percent at $5.69 billion (roughly Rs. 42,530 crores)

Highlights
  • IBM CFO Kavanaugh said demand dropped at the systems business
  • Total revenue rose to $17.62 billion (roughly Rs. 1,31,700 crores)
  • IBM earned $2.52 (roughly Rs. 190) per share on an adjusted basis

IBM on Wednesday missed market estimates for quarterly revenue as its managed infrastructure business suffered from a decline in orders ahead of a spinoff next month, sending its shares down 4% in extended trading. The lower-margin, legacy unit provides technical support to IBM's clients and has shrunk in recent years as companies moved to the cloud, becoming a drag on Big Blue's earnings.

"As we issued the effective date for the spin-off of our managed infrastructure business, our clients paused all new project activities at the end of September and that impacted us here," Chief Financial Officer James Kavanaugh said in an interview.

Revenue at the global technology services unit, which houses the business set to be called Kyndryl after the spinoff, fell 4.8 percent to $6.15 billion (roughly Rs. 45,960 crores) in the third quarter ended September 30.

Kavanaugh also said demand dropped at the systems business, home to IBM's mainframe computers, as the end of the product cycle neared, driving a 12 percent fall in the unit's revenue.

The slowdown in the legacy business has prompted 110-year-old IBM to shift focus to hybrid-cloud, an area where it sees a $1 trillion (roughly Rs. 74,73,470 crores) market opportunity, to boost growth and better compete with Amazon and Microsoft.

Revenue at the cloud and cognitive software unit was up 2.5 percent at $5.69 billion (roughly Rs. 42,530 crores) but missed analysts' estimates of $5.77 billion (roughly Rs. 43,130 crores), according to Refinitiv data.

The weakness at IBM's "supposedly high-growth areas is more problematic" than the revenue miss, said Wedbush analyst Moshe Katri.

Total revenue rose slightly to $17.62 billion (roughly Rs. 1,31,700 crores), missing expectations of $17.77 billion (roughly Rs. 1,32,850 crores).

But IBM's revenue adjusted for the Kyndryl spinoff was 2.5 percent higher, helped in part by firmer demand for its consulting services from enterprises digitizing their operations during the COVID-19 pandemic.

IBM earned $2.52 (roughly Rs. 190) per share on an adjusted basis, compared with estimates of $2.50 (roughly Rs. 185).

© Thomson Reuters 2021


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